In what could be a breather to India Inc, the corporate affairs ministry is proposing diluting norms for rotation of auditors and audit firms for companies in the new Companies Bill. The bill will be taken up for consideration in Parliament in the ongoing Budget session.
In Clause 123 (1A) of the Companies Bill, the ministry stipulates that no company can appoint or re-appoint an individual or a firm as auditor for more than five consecutive years. “The provisions of mandatory rotation of auditors and audit firms will stay, although the five-year period for rotation (of auditors) may be relaxed. Industry did have issues with rotating auditors and audit firms every 5 years but we are working out a more acceptable time frame,” a senior MCA official said.
Although the provision for rotation of auditors was approved by the Parliamentary Standing Committee on Finance that had earlier scrutinised the Bill, it did not find favour with the industry.
The industry argued that it takes years for an auditor to understand a large company and hence change of auditors after five years is not desirable. The official further said, “although industry is largely divided on the stipulations, the consensus is emerging that although rotation should be made mandatory, it should be for an increased time period”. The Parliamentary Standing committee has noted that rotation of audit partners and audit firms should be considered especially in the light of the Rs 14,000-crore accounting fraud at Satyam Computer, whose founder confessed of having cooked the books of the company for over seven years.
Ever since, the audit profession itself has come under public eye, prompting the government not only to impose stricter provisions for appointment of statutory auditors, but also to ensure that the process of statutory audit and the functioning of auditors are truly independent and effective.